Omnibus Tax Bills
On Monday, the Senate needed two votes to pass the $1.8 billion omnibus tax bill. On the first vote, the bill was defeated 34-32 with seven DFL members voting against the bill. After the first vote failed, Majority Leader Tom Bakk (DFL-Cook) moved for a recess where the DFL members went into a closed door caucus to discuss what had happened. Once they reconvened, they voted on party lines to reconsider the bill. Once the bill was brought back for debate it passed by a vote of 35-31. Two DFL members switched their vote from no to yes in order to pass the bill. They were Sen John Hoffman (DFL-Champlin) and Sen. Greg Clausen (DFL-Apple Valley). In all, four DFL members voted against the bill. They were Sen. Terri Bonoff (DFL-Minnetonka), Sen. Bev Scalze (DFL-Little Canada), Sen. Susan Kent (DFL-Woodbury) and Sen Melissa Franzen (DFL-Edina). One Republican member, Sen. David Senjem (R-Rochester), voted for the bill.
The bill was sent to a conference committee where five members from each body will work out the details of a final bill. After this step is completed, the final product needs to pass both the House and the Senate in order to land on the Governor's desk.
Several important issues will be decided in the conference committee. Among them are the following:
Both bodies have included affiliate nexus provisions in the omnibus tax bills. The provision is designed to require some online retailers located outside of Minnesota to collect sales tax on purchases by Minnesotans. This would be effective for sales and purchases made on the Internet after June 30, 2013.
Commercial Industrial Tax
The Senate tax bill contains an increase in the state general tax. This tax is paid by commercial-industrial properties (95 percent) and cabins (5 percent). The tax presently generates $841 million dollars annually for the state's general fund. Under the Senate proposal, the tax will increase $136 million in the 2013-14 biennium and $220 million in the 2016-17 biennium.
Foreign Corporation Tax Credits and Deductions
Both the House and Senate bills seek to capture tax revenues from Minnesota companies that do significant business overseas. The House version seeks to collect $95 million while the Senate goes much farther seeking $190 million. Both versions of the bill would eliminate the deduction for foreign operating corporation income beginning in 2013. That income would be taxed on the same basis as other corporate income. The bill also removes the subtraction for foreign royalty income so that such income would also be taxed as other corporate income beginning in 2013. Under current law, the subtraction is 80 percent of royalties from foreign income.
Mall of America Phase Two Expansion
Funding for the phase two expansion at the Mall of America is found in the House and Senate tax bills. The funding mechanism supported by House Tax Chair Rep. Ann Lenczewski (DFL-Bloomington), would rely on the Fiscal Disparities pool, which is a metro commercial real estate tax base sharing program. This program captures a share of the overall value of the metro area's commercial and industrial property and places it into a pool that is used to reallocate funds to local governments within the region. The Senate and House have different approaches, but both would provide a subsidy for the phase two expansion.